Eurozone business activity growth soared in May as restrictions eased - GulfToday

Eurozone business activity growth soared in May as restrictions eased


The lights of the bridges and buildings are reflected in the river Main in Frankfurt, Germany. Associated Press

Eurozone business activity surged in May as the easing of some coronavirus related restrictions injected life into the bloc’s dominant services industry, a survey showed, echoing data on Tuesday which showed factories had their best month on record.

An acceleration of vaccine programmes across the region and a fall in reported daily cases has allowed governments to remove some measures imposed to stop the spread of the virus.

That meant IHS Markit’s final composite Purchasing Managers’ Index (PMI), seen as a good gauge of economic health, jumped to 57.1 last month from April’s 53.8, its highest level since February 2018.

May’s final reading was ahead of a preliminary 56.9 indication and comfortably above the 50 mark separating growth from contraction.

An index covering the service industry soared to a near three-year high of 55.2 from 50.5, just beating the 55.1 flash estimate.

“The eurozone composite and services PMIs for May came out in line with expectations and continue to show that confidence is high,” said Neil Birrell, chief investment officer at Premier Miton.

“With ongoing government support and loose policy from the ECB it should be expected that the recovery will remain robust and also fed by the pick-up in activity around the world.” The European Central Bank will start tapering its pandemic purchases later this year but won’t raise interest rates until at least 2024, according to a Reuters poll published earlier on Thursday.

ECB chief Christine Lagarde said the Bank would support the eurozone “well into” its recovery from a pandemic-induced double dip recession.

BROAD UPTURN Suggesting the upswing would continue, the services new business index was the highest since early 2018 the overall composite new orders reading bounced to a near record 58.4 from 53.4 - its highest since June 2006 - as pent-up demand was released.

German services returned to growth in May, helped by falling coronavirus infections and a loosening of COVID-19 restrictions, lifting overall private sector output in Europe’s largest economy.

French business activity surged as an easing of the coronavirus lockdown fired up the service industry while in Spain the service sector expanded at the fastest pace since 2015. Meanwhile, Italy showed signs of recovery.

In Britain, outside the eurozone and the European Union, the services sector recorded the biggest jump in activity in 24 years, after pubs and restaurants were allowed to resume serving customers indoors following months of lockdown.

Alongside the recovery in services, eurozone manufacturing activity expanded at a record pace in May, according to a sister survey on Tuesday which suggested growth would have been even faster without supply bottlenecks that have led to an unprecedented rise in input costs.

The euro area was expected to emerge from a double-dip recession this quarter and expand 1.5 per cent, a Reuters poll found.

Following a slow start, vaccination drives across the region have picked up pace and with restrictions being eased optimism about the year ahead increased. The services business expectations index rose to 71.2 from 68.4, its highest since January 2004.

“The relationship between the surveys and GDP has broken down since the pandemic began, but the strengthening activity indicators bode well nonetheless,” said Jack Allen-Reynolds at Capital Economics.

Eurozone bond yields held near recent lows on Thursday as markets sought direction ahead of next week’s ECB policy meeting, while long-dated debt auctions from Spain and France attracted decent demand.

The European Central Bank will support the eurozone “well into” its recovery from a pandemic-induced double dip recession, its president Christine Lagarde said on Wednesday.

ECB policymakers entered their silent period before the June 10 meeting, a week in which they avoid saying anything that could influence expectations about monetary policy decisions.

Comments in recent weeks, led by Lagarde, that it would be too early for the ECB to discuss slowing its pandemic emergency bond purchases (PEPP) helped reverse a sharp sell-off in the bloc’s government bonds in May. That had been driven by speculation that the ECB may slow purchases as the bloc’s economic outlook brightens with speedier COVID vaccinations.

Yields have held in a relatively tight range for the last week and that persisted on Thursday, as Germany’s 10-year yield, the benchmark for the euro area, was unchanged at -0.19 per cent by 1020 GMT.

Meanwhile, long-dated debt auctions from France and Spain saw relatively good demand without weighing on the market.

That was in contrast to the weak demand observed at recent auctions from Germany, one of which received less demand than the country’s target.

“The underlying picture to me is that there isn’t a strong case for holding cash core bonds as the European recovery continues,” said Antoine Bouvet, senior rates strategist at ING.


Related articles